1 answer

Suppose that two countries, A and B, employ the same technology in the production of a...

Question:

Suppose that two countries, A and B, employ the same technology in the production of a good. External economies of scale apply in both countries. Analyze the effects of trade on long-run production levels if country A has a comparatively lower cost of production when trade begins. (Why some answers say that B has a comparative advantage?)


Answers

Country B will never have competitive advantage against country A. As both of the countries have similar type of technology in that case both countries will be in the same position. But what makes A ahead of B is the cost benefit advantage. So in Long run A will have the competitive advantage not B.

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